Economics at your fingertips  

The structural fragility of financial systems: Analysis and modeling implications for early warning systems

Dieter Gramlich and Mikhail Oet ()

Journal of Risk Finance, 2011, vol. 12, issue 4, 270-290

Abstract: Purpose - Lessons from the most recent financial crisis show specific vulnerabilities of financial markets due to weaknesses in the structure of the financial system (structural fragility). As the literature points out, the impact of systemic risk can be closely related to issues of concentration (“too big to fail”) and dependency (“too connected to fail”). However, different structural variables are emphasized in various ways, and most authors analyze each variable separately. This raises the questions of how structural fragility, as a cause of systemic distress, can be assessed more comprehensively and consistently, and what the implications are for modeling it within an integrated systemic risk framework. This paper seeks to address these issues. Design/methodology/approach - On the basis of theoretical considerations and in the light of current transformations in financial markets, this paper explores elements of structural fragility and the requirements for modeling them. Findings - The paper suggests an extended approach for conceptualizing structural fragility, evaluates directions for quantifying structural issues in early warning systems (EWSs) for systemic crises, and lays a theoretical groundwork for further empirical studies. Originality/value - The need for supervisory actions to prevent crises is urgent, as is the need for integrating structural aspects into EWSs for systemic financial crises. Since a significant aspect of a financial firm's risk comes from outside the firm, individual institutions should understand and monitor the structural aspects of the various risk networks they are in.

Keywords: Financial market vulnerability; Systemic risk; Systemic risk capital; Financial markets; Banks (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link) ... RePEc&WT.mc_id=RePEc (text/html)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
http://emeraldgroupp ... /journals.htm?id=jrf

Access Statistics for this article

Journal of Risk Finance is currently edited by Bonnie Buchanan

More articles in Journal of Risk Finance from Emerald Group Publishing
Bibliographic data for series maintained by Virginia Chapman ().

Page updated 2020-12-22
Handle: RePEc:eme:jrfpps:v:12:y:2011:i:4:p:270-290